U.S.-Canadian tomato wars: An economist tries to make sense out of recent antidumping suits

Journal of Agricultural and Applied Economics, Aug 2003 by VanSickle, John J, Evans, Edward A, Emerson, Robert D

U.S. growers filed an antidumping case against Canadian growers of greenhouse-grown tomatoes, alleging that U.S. growers were being injured, or threatened with material injury, by imports from Canada. The U.S. Department of Commerce determined that imports of greenhouse-grown tomatoes were being sold in U.S. markets at less than fair market value. The U.S. International Trade Commission determined the "like product" to be all fresh market tomatoes, concluding the domestic industry was not materially injured. Anecdotal evidence used by the Commission Department in determining like product ignores the wealth of knowledge that economics can add. An economic model is proposed for purposes of determining like product

Key Words: antidumping, law, tomatoes, trade, U.S.-Canada

The U.S.-Canadian trade dispute filed by U.S. greenhouse growers against the Canadian growers of greenhouse-grown fresh tomatoes provides an interesting insight into trade law and dispute resolution and demonstrates the need for incorporating more economic analyses when adjudicating trade disputes. The trade dispute with Canada in the fresh tomato market is preceded by the many cases that have been filed by U.S. growers of fresh tomatoes against Mexico. A review of those petitions provides an interesting and informative backdrop for discussion about the U.S.-Canadian cases and the role of economics in determining the outcomes in these cases. The specific concern of this paper is the extent to which the U.S. International Trade Commission (ITC) makes systematic use of market data in defining the "domestic like product" and the scope of the affected "domestic industry." In view of the critical part such determinations play in a final determination of whether injury has occurred, it is posited here that an approach more transparent than the one currently employed could be more appropriate in such determinations. A simple, practical, market-based approach that would assist the relevant agencies in drawing conclusions on like product is suggested. The ITC looks for "clear dividing lines among possible like products and disregard minor variations."1 We begin our discussion with a brief overview of the legal procedures for adjudicating trade disputes in the United States.

Brief Overview of the General Framework for Adjudicating Trade Disputes in the United States

U.S. trade laws are intended to prevent unfair trade practices by foreign firms by enabling domestic producers to seek protection from imports that allegedly injure specific firms or industries. The three main statues that offer such protection are the "Safeguard" provisions of Sections 201-3 of the Trade Act of 1974, the "Antidumping" provisions under Section 733(a) of the Tariff Act of 1930, and the "Countervailing Duty" provisions under Section 701 of the Tariff Act of 1930.2 Although the analytical procedures are somewhat similar in these cases, the former (Safeguard provisions) upholds a higher injury standard than the latter. An affirmative in a "Safeguard provisions" case requires that the domestic industry must be materially harmed and that the injury is by cause of dumped imports.3 This differs from the injury standard in antidumping and countervailing duty cases that require "harm which is not inconsequential, immaterial or unimportant."4 In antidumping and countervailing duty cases, the criteria can be satisfied by simply showing that imports have resulted in a decline of industry capacity. However, in Safeguard cases, the evidence would have to show that there was actual closing of firms or a decline in industry capacity, in addition to other evidence of injury such as declines in prices, employment, wages, or growth or the ability to raise capital for investment.

The two federal agencies with mandates for adjudicating trade disputes in the United States are the ITC and the U.S. Department of Commerce (DOC). Following the filing of a countervailing duty or antidumping petition with both agencies, the investigation follows a broadly classified two-step process. First, the DOC defines the subject merchandise to be investigated in the case and conducts its own investigation to determine whether an unfair trade practice occurred. For countervailing duty cases, the DOC determines whether imports received countervailable subsidies from the government of the country or any public entity. In antidumping cases, the DOC determines whether the imported product was being sold in the United States at less than fair value (LTFV). The standard measure is to first compare prices for export to home market sales. If export sales prices are less than home market prices, then that represents dumping on the part of the exporters. Home market sales are excluded when determining fair value when the home market sales are below cost of production over an extended period of time and in significant quantities and are not at prices that permit recovery of all costs within a reasonable period of time in the normal course of trade.5 If there are not sufficient home market sales above cost of production, then the DOC can turn to the third country test. If the third country test fails the standard of sales above cost of production, the fair value test becomes constructed value, which assesses the cost of production by taking into account the cost of production inputs. The determination of dumping margin in many agricultural cases hinges on the constructed value test.